Material Adverse Effect

Summary

This term is most relevant in the context of negotiating qualifications to representations and warranties or covenants in a Credit Agreement (often referred to as an MAE Qualifier). Many Borrowers will want to limit the representations and warranties or covenants so that defaults will only be triggered if not meeting the requirement could create a material adverse effect on the company or its business. The scope of the definition of Material Adverse Effect is highly negotiated between Lenders and Borrowers. Oftentimes no Material Adverse Effect is also a condition to funding in commitment letters and Credit Agreements or an Event of Default. Often used interchangeably with Material Adverse Change.